Keeping Control of Assets in an Offshore Trust

An offshore asset protection trust is an irrevocable trust formed under the laws of a foreign country that has favorable asset protection laws. Offshore trusts protect assets from your creditors and lawsuits. Offshore trusts also provide enhanced privacy and flexible estate planning.

How Does an Offshore Asset Protection Trust Work?

An offshore asset protection trust locates assets beyond the jurisdiction of U.S. courts.

An offshore trust is administered by a foreign trustee. The offshore trustee is a professional foreign financial company whose principal office is in the offshore jurisdiction where the trust is located. The trustee oversees the investment and management of trust assets. The trustee also has the discretion to distribute income and principal to you, the trustmaker.

Once you transfer your assets to an offshore trust, you no longer own or control the assets. A U.S. judgment creditor can go after your assets to satisfy its judgment, but the creditor cannot levy or garnish assets you neither own nor control within your offshore trust.

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Risk of Keeping Control of Your Assets in Offshore Trust

The most common reservation our clients express about an offshore asset protection trust is relinquishing control of their assets to a foreign trustee. While we have dealt with reputable trustee firms in our practice for many years, many of our clients, understandably, feel unsure about handing over direct control of their wealth to a company and people they do not know.

The transfer of control, while unsettling for some, is an important element of asset protection provided by offshore trusts.

Here’s why.

Even though a U.S. judge may not have jurisdiction over your assets held by a foreign trust, the U.S. judge retains jurisdiction over you, the person who created the trust.

A judge can issue an order compelling you to take certain actions to aid a creditor’s efforts to collect a judgment the same judge previously entered against you.  As long as you have direct, or even indirect, levers of control over your offshore trust, a judge could order you to make distributions from the trust that could be garnished.

Or, the judge might order you to remove your offshore trustee and appoint your creditor as trustee. If you failed to comply with any such order, a court could hold you in contempt with threat of incarceration for non-compliance.

For these reasons, offshore asset protection depends upon giving up total control over your trustee and trust administration.

Can Someone Have Asset Protection and Some Control Over Offshore Trusts?

A customized offshore trust agreement can include provisions to retain substantial control over your assets without losing offshore asset protection.

For instance, you can serve as a co-trustee with your foreign trustee. The trust agreement could give you the right to retain control over the investment of trust assets, or the management of a trust-owned business, and appoint the foreign trustee as a custodian. The foreign trustee would hold title to the assets but you would retain sufficient ties to your assets to invest and manage them as you wish.

We recommend to our co-trustee clients that they resign their trustee position if a judgment is entered against them in order to sever control and maximize asset protection. They can resume management control after the judgment is resolved.

Offshore trust provide excellent asset protection provided that you divest title and control of your assets to be held in trust. As long as there are no imminent civil judgments, you have the ability to design a trust agreement where you share investment and administration with a foreign trustee.

About the Author

Jon Alper is a nationally recognized attorney specializing in asset protection planning. He graduated with honors from the University of Florida Law School and has practiced law for almost 50 years.

Jon and the Alper Law firm have advised thousands of clients about how to protect their assets from creditors.